The Secret Sauce to Get the Most Out of The #1 Store Expense: Labor

Brick and mortar stores remain a very important part of retail, as over 90% of shoppers research products online and 70% prefer to buy in-store.

There are numerous combinations of products, shoppers, and circumstances that make brick and mortar the preferred point of purchase. While online product pages are studded with information, they lack perhaps one of the greatest conversion drivers in retail: human interaction with an in-store associate.

On the store floor, well-trained associates generate value. They help customers make purchase decisions and find complementary products. This creates a shopping environment that encourages repeat purchases and brand loyalty.

At the same time, labor is usually a store’s biggest expense—more than rent, etc.—and so a store’s labor spend is central to its financial success or failure. The critical question facing every smart retailer, therefore, is how can they get the most value from their investment in labor?

Maximizing value from a store team is achievable, but not easy. In fact, it’s a dynamic process that requires the proper amount of labor and sales goals, a great schedule, and a field management team that knows how to strategically lead the in-store teams to deliver the best possible customer experience.

The Ingredients for Success

Sales goals and labor budgets set the foundation for a store’s success. Sales goals impact inventory allocations and set expectations for success, while labor budgets give the store the key asset they need to succeed—people. However, there is nothing more demoralizing to a team than to be given a goal they can’t make.

When creating sales goals and labor hour budgets, Finance, and Retail Operations need to have an eye toward what factors the store team can control and those they can’t. Fundamentally, a store team can’t impact traffic, the products offered, or prices and promotions. But they can impact how well they take advantage of the traffic they do get. And it turns out that there is a huge variation in sales between teams that do this well and teams that don’t. Just last week I spoke to a retailer and showed them three of their stores in the same geography, with the same square footage, assortment, and identical traffic counts, but whose annual sales differed by over $1M! Retailers need to motivate and recognize the great teams, and help coach and improve the poorer teams. Sales goals can create this motivation.

For example, consider a store whose sales are down 7% to LY, but whose traffic is also down 20% because the anchor tenant in the mall closed. To only be down 7% in the face of 20% fewer shoppers tells me that this is a great team who is getting the most out of the traffic they do get. But if their sales goal is set to 3% above LY, being 7% down to LY will be a downer for team. They will likely be demotivated, unenthusiastic, missing bonus, and possibly on the verge going to another retailer where they can be successful. The right sales goals would recognize that this is a great team worth retaining. It would make them feel like they are winning by doing so well in the face of a huge external challenge.

Labor budgets also impact team motivation. Good budgets arm the store with the number of people they need to do their jobs properly given the number of customers coming into the store. It feels good to have the resources you need to win! Conversely, bad labor budgets bring everybody down. Too few associates and the team will feel overwhelmed and stressed trying to serve customers properly. They will know they aren’t helping customers well enough and won’t feel good about that. Too many associates, on the other hand, and team members will trip over each other helping customers, will sense that something is wrong with the store business model and wonder how long the store can operate like this.

Once sales goals and labor budgets are set, Store Managers need a schedule that uses labor budgets effectively. Just like with high-level goals and budgets, a schedule arms each individual shift with the assets—aka staff—needed to meet the expected traffic and operational tasks for that shift. Getting it right keeps staff happy and motivated. But getting it wrong leads to bad outcomes for staff and customers alike.

Getting to a great schedule, however, isn’t easy. Forecasting traffic, balancing shifting operational tasks, evaluating the strengths and weakness of team members relative to the shift goals and matching which staff is available when is a highly complex optimization problem! Especially when the only tool at their disposal is Excel. No wonder, then, that for most Store Managers next week’s schedule is a copy and paste of last week’s schedule. Nothing about copy and paste is optimized to the store’s needs or the team’s capabilities, but it is the best a harried Store Manager can do given everything else they are juggling. A great schedule is fundamentally amix of art and science, and retailers need to provide their store with better “science” tools if they are going to get the most from each labor hour, day in and day out.

Lastly, to get the most out of labor spending the store-day itself needs to be managed strategically, focusing a team on delivering a great customer experience first and completing routine tasks second. Store Managers and Shift Leads need to know which team members on the shift are conversion kings versus which ones can increase basket size in order to put the right people in the right place at the right time. And they need to coach those employees on their opportunities, so they have a better chance for success. Store leaders also need to know when the store will be busy (all-hands-on-deck to service customers!), and when there will be lulls (good time for tasks) so that at every moment the team is busy and productive. In general, employees want to do a good job and get excited when they believe they are. With a strategic focus, Store leaders can provide their teams with a clear path to success for every day, shift, and hour.

The Case for New AI-based Approaches

The high-level concepts I mentioned above are not necessarily new ones, and retailers have wrestled with ways to get more out of their #1 store expense for decades. But only now have new solutions been possible. What has changed? The AI revolution.

By this, I mean both the advent of cloud computing (unlimited, on-demand data storage and computational power) and the dramatic advances in algorithms and techniques to make sense of that data. Only AI has the capacity to crunch the mountains of data a retailer has, in real-time, and find the relevant patterns to drive action at the speed and detail of retail. Humans fundamentally can’t do this, and so the pre-AI approaches that retailers have been using for decades are limited at best. The old familiar approaches can’t generate the value and improvements that AI-solutions can.

When utilizing an AI-powered suite of tools, retailers give themselves the opportunity to create a powerful, data-driven approach to store labor that’s tailored to each store and responsive to the changing conditions of retail. If you are serious about getting the most from store labor expense, an AI-based solution that optimizes and synchronizes all three components of labor spending—budgets, schedules, and daily execution—is essential.